Dilemma for Landlords as Yields Fall Across The Country

Dilemma for Landlords

Almost one in three UK landlords are planning to sell their properties as yields fall and changing lifestyles have forced people out of cities, according to a recent report.

The buy-to-let situation has become a two-sided story, with some landlords having a tough time selling whilst others plan to increase their portfolio before the chancellor’s stamp duty holiday ends on March 31 next year.

So, who are the winners and losers in of this year’s property market changes?

The sellers

According to the National Residential Landlords Association (NRLA), around 30 percent of landlords (roughly 85,000) are planning to sell properties over the next 12 months.

A similar proportion have also experienced a drop in rental yields (particularly in London) and, according to the rental platform Accommodation, nearly half of all landlords have had problems with tenants paying their rent late or not at all.

Some are therefore using the stamp duty holiday as an opportunity to sell, as this break removes tax from the purchase of any properties worth up to £500,000.

However, as a significant number of potential tenants have moved out of cities since the start of the pandemic, rents have fallen by 5.2 per cent over the past year.

Chris Sykes from the London-based broker Private Finance said: “I’ve seen more landlords selling than buying, although if property prices do drop, you will definitely get investors piling in to get as much cheap property as possible while they can.”

In addition, with the unemployment rate currently at 4.8 per cent, the massive spike in redundancies is a serious threat to landlords’ earnings if it means that their tenants cannot pay their rent. Some may have enough savings to support themselves for a month or so, but many tenants who have lost their jobs will face a struggle in the long-term.

The charity Citizens Advice claims that over a million people are believed to have fallen behind on their rent payments because of the coronavirus pandemic which has led many landlords to consider selling their buy-to-let portfolios.

The buyers

The NRLA has also suggested that one in six landlords are planning to buy more properties in the next 12 months, with investors also likely to save up to £15,000 per property due to the stamp duty holiday.

Mortgage broker Andrew Montlake from Coreco said that there has been growing demand from property investors since stamp duty was cut, but typically this was being used by landlords with equity.

“They are proving more active than ever in what is increasingly a buyers’ market,” he said.

Other brokers are reporting that landlords have been re-mortgaging to raise funds to buy more properties whilst also taking full advantage of the lower interest rates.

One thing is clear: landlords with larger properties that have gardens and office space will be in a stronger position, because it is quicker and easier to find tenants for houses than flats at the moment.

Furthermore, with first-time buyers struggling to get mortgages, there is also less competition for properties, with many people having to rent for longer.

Most first-time buyers will be unable to secure a mortgage unless they can afford the 15 per cent deposit, which has resulted in many being forced to continue renting.

This was reflected in September, where the share of properties being purchased by first-time buyers dropped for the first time in five years.

Overall, the vast amount of legislation that has been put on to landlords over the last few years, coupled with the pandemic, has led to many trying to sell some or all of their portfolios this year.

It’s fair to say that many landlords are asking themselves whether it feels safe being a landlord anymore and whether it is even worth the stress.

It’s a difficult call and, after March, the state of the property market may just be the final straw.

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